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Summer Research

During the summer of 2017, the Center for Justice and Law supported faculty and student research through the award of a competitive grant. Stacie Bosley, professor in the School of Business, was awarded the grant for her project, “Judgment and Decision-Making in a Pyramid Scheme Experiment: Lessons for Active Consumer Education.” Working with University of Minnesota colleague Marc Bellemare, as well as Hamline University and University of Minnesota students, the team conducted research at the Minnesota State Fair. Two Hamline undergraduate students, Linda Umwali and Joshua York, worked full-time on the project as part of Summer Collaborative Research and will present their research at the 2018 National Conference on Undergraduate Research.

This project explores individual judgment and decision-making in the context of a pyramid scheme experiment, conducted at the 2017 Minnesota State Fair in collaboration with the University of Minnesota’s Driven to Discover program. The experimental structure asks subjects to make a choice with actual money at stake, where one option allows the subject to invest in a classic pyramid scheme – the Airplane Game. The game is designed to reflect illegal schemes promoted to consumers in everyday life. After making a choice with their allotted funds, subjects respond to questions that probe potential markers of vulnerability, including demographics, income, cognitive ability, impulsivity, risk preferences and financial literacy. All participants are fully debriefed through videos that educate subjects about pyramid scheme fraud, warning signs, and related consumer resources. Both English and Spanish-proficient adults are eligible to participate. Experimental results are used to explore pitfalls in judgment and decision-making processes and to identify correlates of consumer vulnerability, useful in the development of targeted consumer education.

The research team recorded demographic, psychological, cognitive, and behavioral characteristics for 452 subjects at the 2017 Minnesota State Fair. Overall, 44% of subjects chose to invest money in the pyramid scheme.

Results indicate that a straightforward, simple treatment – a reminder to pay attention to the odds of winning or losing – reduces fraud uptake, but only for subjects with a post-secondary education. Correlates of victimization include cognitive ability, risk preferences, religiosity, and prior exposure to pyramid scheme fraud. Subject reliance on probabilities in decision-making and the accuracy of subjective expectations are the most statistically significant predictors of the decision to invest in a fraudulent pyramid scheme.

Future extensions of this research include additional experimentation on a nationally representative sample of subjects, development of consumer protection materials, and examination of consumer protection efficacy (i.e., testing information retention and salience across multiple modes of education).